Cerberus backs $186M Exco buyout
By Claire Poole
January 8, 2003
Straying from its usual focus on distressed companies, the New York investment firm
will help finance a management-led takeover of the Dallas oil explorer.
New York investment firm Cerberus Capital Management LP agreed to put up $186
million in financing for a management-led buyout of Dallas oil explorer Exco
Resources Inc., according to a 13D filing Tuesday, Jan. 7, with the Securities and
The offer is something of a departure for Cerberus, which typically invests in the
equity and/or debt of financially distressed companies. Exco is in good financial
health. Cerberus didn't return calls seeking comment.
In August 2002, Exco received a takeover offer from its chairman and CEO, Douglas
Miller, for $17 per share, a 21% premium over the firm's stock price at the time. The
company set up a special committee of independent directors to consider the
proposal and hired Merrill Lynch & Co. to advise it.
On Dec. 30, Exco said a group led by Miller and president and treasurer Ted Eubank
sweetened the offer to $18 per common share and $18 to $18.52 per preferred
share. It said it was negotiating with the group after failing to find another buyer on
more attractive terms and expected the talks to be completed by the end of January.
Eubank wouldn't comment much beyond what was in the filing.
"We're moving forward with that financing and expect to continue to work with the
company and the special committee through the end of the month," Eubank said.
Stephen Smith, an Exco board member and head of the special committee, wouldn't
comment on the financing letter, saying it's "premature."
"We're working through the process," he said.
Rick Gordon at Merrill Lynch and Gary Orloff at Bracewell & Patterson LLP in Houston
are advising Exco's special committee. Brian Lidji at Sayles Lidji & Werbner in Dallas
is advising the management buyout group.
Cerberus said in the filing that it submitted its financing letter Dec. 27, offering to
provide a $50 million secured term loan for the executives' buyout and make a
$136.5 million equity investment in the company after the buyout closes.
The financing commitment would give Cerberus a substantial majority of the
company's equity interests, including the 1.1 million common shares, or 15.1% of
the outstanding stock, held by Miller and Eubank. It would also give it certain rights
regarding control of the private company's board and any transfers of its stock.
Stephen Feinberg, an investment manager at Cerberus, submitted the filing to the
SEC. Managing director Lenard Tessler signed the letter.
Cerberus said in the filing that the management group has to notify it no later than
Jan. 17 if it intends to tap the term loan. If it fails to do so, it will have to pay